THE SOCIAL IMPACT OF LOW WAGES Reflections by Father Kevin J. Barr

  • 1st January 2012
  • 2012
  • // Display comment count + link

The justice of a socio-economic system deserves in the final analysis to be evaluated by the way in which a person’s work is properly remunerated in the system.

As Fiji moves more and more from a subsistence to a cash economy, wages have become an increasingly important issue. Wages are the means whereby workers can support themselves and their families and improve their quality of life. Wages provide:

  • access to goods (such as nutritious food, clothing, decent housing)
  • access to services (such as education, and health care). These are the material components of our quality of life.
  • provide workers with the means to care for their extended families, contribute to the vanua, the church or religious organisation, school;
    find rest and recreation for themselves, and
  • save for the future.

Thus it is important that wages are properly determined so that they meet the current needs of workers in accordance with the current cost of living as indicated by the Basic Needs Poverty Line (BNPL). In Fiji this is determined every six years by using data from the Housing, Income and Expenditure Survey carried out by the Fiji Bureau of Statistics (and adjusted each year according to the recognised rates of inflation for the past year).

Wages are recognised as a key factor in the alleviation of poverty. The Fiji Poverty Report (1997:112) stressed that overcoming poverty was not just a matter of providing more employment, it was a matter of making sure that all those in fulltime employment received wages above the poverty line.


image001

The Report stated: “The challenge is not just to create jobs but to provide remuneration enough to enable the workers to live decent lives. This stems from the observation that, though people have jobs, their incomes are insufficient to meet their basic needs.”

So many people in Fiji today are being forced to accept low wages because it is either that or nothing. But a fair wage is not whatever wage the worker is persuaded to accept. A just living wage means that a worker (male or female), if employed full-time, should be able to earn a wage that will enable him/her to support the family in their basic requirements of food, clothing, housing, education and health care. It should also provide some security for the future.

The ten Wages Councils have the task of protecting the interests of the 60% of workers in Fiji who are not covered by Trade Unions. While striving to be fair to employers but just to workers, they sit four times a year and set Wage Regulation Orders (WROs) for those workers in the country who are in full-time employment in the ten industries covered by the Wages Councils. They follow the criteria set out in the ILO Convention on Wage Setting. But, unfortunately, we have high levels of poverty in Fiji (35%+) because at least 60% of workers in full-time employment are earning wages below the poverty line. The reasons for this are discussed below.

While we need investors to stimulate economic growth and create more employment we must also demand that our workers be paid a just living wage. What good is investment if it creates greater poverty? The call for a just living wage is not an appeal for charity or good-will. It is a call for justice.

It seems that there is a fanatical fundamentalism behind the extreme form of neo-liberal capitalism running rampant in our world today. It encourages not just legitimate profit but excessive greed and individualism. It seeks to produce ever more money for those with the most wealth with no limits or regulations. Everything is subjugated to corporate profit.

The demands of individual greed and unlimited profit have been allowed to dominate the business world and governments are often forced to bow to the powerful lobbies of corporations and business elites. These powerful and wealthy elites are able to use their power and wealth to structure the economic system for their own narrow self-interest. This usually involves reducing corporate taxes and the taxes of the rich, keeping worker’s wages low and curtailing the power of Trade Unions. Consequently, worldwide there is a very unequal distribution of wealth and development. Fiji is just another country caught up in this unjust system.

Employers’ Views Dominate Decisions of the Wages Councils

In his detailed research report Just Wages in Fiji – Keeping Workers Out of Poverty (2006) Prof. Wadan Narsey looked back over 30 years of the operations of the Wages Councils and showed how employers had consistently managed to get their own way:

“It was clear that most employers’ representatives resisted all proposals
for wage increases, and they were quite successful in their attempts. The
long term outcome was the severe deterioration in real wage rates and
consequently a growth in poverty in the nation” (p. 77).

“Employers would cite “the usual litany of industrial woes, warn of redundancies and unemployment that high wage adjustments would cause and give a lower counter-proposal” (p.76). They would plead ‘inability to pay’ or ‘this is not the right time’ and get their own way..

In his research Prof Wadan Narsey says that, over the years “stolen wages” (as he terms the refusal to pay an adequate, just wage) have seriously benefited employers but seriously disadvantaged thousands of workers whose quality of life has deteriorated. Narsey claims that in the 30 years since Independence more than $F1billion has been transferred from worker’s wages to employer’s profits mainly because the business lobby was exceedingly influential in the Wages Councils.

Some of the excuses commonly offered by Employers in Fiji have been:

  1. Inability to pay: This has been a common and regular excuse of employers for over 36 years in Fiji. It may sometimes be true but often it is an excuse for which no evidence is produced. The 2007 Employment Relations Promulgation allows any employer who honestly cannot afford to pay the Wage Regulation Order to present his/her case to the Minister who will have his/her books examined by three accountants (a chartered accountant, a forensic accountant, and a tax accountant) and if “inability to pay” is verified, then an exception will be granted. However not one employer has yet availed himself/herself of this possibility so it is presumed that they can pay.
  2. This is not the time for an increase. This regular excuse is used in good times and in bad and it appears that, for employers, no time is ever the right time for wage increases even when they are demanded by inflation and increases in the cost of living. It seems that it is never the right time because better wages will interfere with company profits.
  3. Threat of Redundancies: Often employers threaten that if wages increase they will have to put off workers and so cause greater unemployment. Research in other countries shows that this rarely happens. Sometime there is an immediate angry reaction leading to workers being put off but it is usually temporary and, after a while, employers realise that they need to take their workers back. Also where redundancies do occur the real reason is not wage increases but other factors. The wage increases are used an excuse for what was going to happen anyway.In 2009 Kalpesh Solanki said that if the proposed increases were implemented in February, 3000 workers would lose their jobs. In fact the increases were deferred until July but 3000 workers still lost their jobs in February. In other words wages increases had nothing to do with the job losses. They were going to happen anyway.
  4. Productivity: It has been easy for some employers to suggest that “productivity” must be the main criteria for any wages increase because the Ministry of Labour has been pushing for greater productivity in recent years. We all want to see greater productivity but productivity cannot be limited only to labour productivity. There are a lot of elements which make a company or business productive – management style, up-to-date technology, capital for investment, better training of the work-force, properly targeted markets etc. Moreover for workers to be more productive they need to be paid a decent wage which enables them to meet their basic needs and have the family properly fed, educated and provided with decent health care.
    We cannot expect harmony in the country and productivity in the labour force until workers are treated with dignity and social justice. When you make a garden you don’t prepare the ground, plant the seeds and tell the seeds that, if they grow, you will give them some water. You water them and then they will grow. Likewise you can’t demand productivity before you provide a decent wage. You give workers a just living wage and then you can expect greater productivity.

    While  we need investors to stimulate economic growth and create more employment we must also demand that our workers be paid a just living wage. What good is investment if it creates greater poverty? The call for a just living wage is not an appeal for charity or goodwill. It is a call for justice.

  5. Being internationally “competitive”: Again we hear the excuse that employers in Fiji have to compete with lower costs in countries such as South East Asia. But why should the burden of being “internationally competitive” be placed on the shoulders of workers whose wages are well below the Basic Needs Poverty Line. Wages are relative to the cost of living in a specific country and the Basic Needs Poverty Line in that country should be considered to be the guideline for wages in that country. You cannot measure the wages of workers in Fiji against the BNPL of another country. If employers want to pay Bangladeshi or Chinese wages they should go and set up their businesses in Bangladesh or China. If they stay in Fiji they should be bound by the standards and requirements of Fiji measured against the BNPL and inflation in Fiji.Moreover employers often try to make their own personal interests appear to be in the national interest and so persuade governments to give in to their requirements. They threaten loss of international competitiveness or redundancies if wages are increased. They do not consider their worker’s basic needs to be in the interest of the nation. This is scandalous behaviour and is unacceptable. Wages are part of the cost of doing business in a particular country – not a handout to workers from what is left over after desired profits have been made. Business may be the engine of growth but it is the workers who keep the engine moving and workers need to be able to meet their basic needs. Employers certainly need to make a profit but not at the expense of the basic needs of their workers.
  6. Wages and Poverty: Unfortunately employers continually fight against the idea that wages have anything to do with poverty. Yet, as Wadan Narsey has pointed out in his history of the Wages Councils, the continual deterioration of worker’s wages brought about by the successful opposition from employers over the years, has led to deeper poverty in Fiji.Also, as mentioned in the Fiji Poverty Report of 1997: “The challenge is not just to create jobs but to provide remuneration enough to enable the workers to live decent lives. This stems from the observation that, though people have jobs, their incomes are insufficient to meet their basic needs.”
    Years ago Ian Robertson (1977:254) expressed in very clear terms why there is so much opposition to reducing poverty and inequality in Fiji and other places in the world:

    “Poverty exists because our society is an unequal one, and there
    are overwhelming political pressures to keep it that way. Any
    attempts to redistribute wealth and income will inevitably be
    opposed by powerful middle and upper class interests. People can
    be relatively rich only if others are relatively poor, and since power
    is concentrated in the hands of the rich, public policies will continue
    to reflect their interests rather than those of the poor.”

     

    As mentioned above, the extreme form of neo-liberal capitalism running rampant in our world today encourages not just legitimate profit but excessive greed and individualism. It seeks to produce ever more money for those with the most wealth with no limits or regulations. Everything is subjugated to corporate profit. It is the greed and selfishness of the rich few which deepens poverty for the many.

  7. Twisting the Truth: By expressing wage increases in terms of percentage some employers try to twist the truth and confuse the nation. For example, a few years ago the wage for the lowest workers in the country was increased from $1.25 to $1.50 (when the poverty line would have required a wage closer to $4.00). The increase was just 25 cents but some employers yelled and screamed that it was a 20% increase and too much for them to pay. By speaking in terms of percentages they twisted the truth that the lowest paid workers in the country were simply receiving 25 cents more. They made the increase appear excessive when, in fact, it was small and far from adequate.
  8. Longer Hours: Some industries (e.g. Security) suggest that if workers are to receive wages above the poverty line they should be able to work longer shifts. The Employment relations promulgation allows only two shifts – 45 hours over 5 days and 48 hours over six days. They suggest (5 or even 6) shifts of 12 hours which would make for work hours of 60 or 72 hours. Thus better wages can be achieved by multiplying low rates by longer hours. This is no justification for unjust wages. Workers should not have to work longer hours or shifts in order to make a decent living and earn a wage above the BNPL (even if workers are persuaded by their companies to ask for this).

The Issue of Low Wages – some important observations

Some important observations need to be made on the issue of low wages:

  • Low wages (as long as they are just and fair) may give some employers an incentive to provide more employment to workers.
  • BUT low wages (below the Basic Needs Poverty Line) simply create more poverty and instability in a country.
  • Low wages rarely provide an incentive for greater productivity whereas decent living wages provide workers with the possibility of being more productive (because they and their children are better fed, better housed and better educated and hence more satisfied and so less prone to sickness, absenteeism and criminal activity).
  • Widespread poverty does not encourage economic growth in a nation. It is a breeding ground for lower educational standards, poor health, squatter housing and greater instability, all of which ultimately prevent economic growth in a country. It is also a breeding ground for crime and hence more costly to government in terms of police, courts and prisons.
  • Low wages have many repercussions in a nation in terms of overall quality of life. They negatively impact on a worker’s ability to afford decent housing, a decent education for their children, proper health care for themselves and their families and their ability to care for their elderly and the needy in their extended family.
  • Low wages often lead to better qualified workers going overseas to seek employment and so causing a “brain drain” for the home country.
  • It makes it very difficult for people in Fiji (or overseas) to support the “Buy Fijian Made” campaign unless everyone in Fiji and overseas is fully satisfied that workers in Fiji are paid a just living wage. Otherwise they are supporting injustice.
  • A better distribution of wealth through just living wages and progressive taxation lessens poverty and inequality and makes for a better, more stable, safe and prosperous nation for all – including the better off.

NOTE: A SOCIAL WAGE

We are all familiar with the idea that workers receive a wage for the work they do. The justice of a socio-economic system deserves in the final analysis to be evaluated by the way in which a person’s work is properly remunerated in the system.

Some economists (even in Fiji) have recently revived the concept of a “social wage”. The term “social wage” encompasses the benefits workers receive from a source other than the wage component of their pay packet. Examples are Medicare, superannuation, maternity and child allowances. It is that part of a worker’s subsistence which is provided as a free public service rather than something paid for in the normal way. To this extent some refer to a “social wage” as being a “handout” and not exactly a wage which is earned.

Unfortunately those who promote the concept of a social wage usually argue against fighting for pay increases and think that the struggle of unions and workers for better wages implies a class struggle and think that this should be avoided. They promote the idea that it is better to legislate for improvements in social benefits (or the social wage).

The invocation of the concept of “social wage” can easily become an excuse for not increasing wages even when wages fall below the poverty line. It can be a way of continuing to promote a low wage economy and refuse to admit the need for a better distribution of wealth created through economic growth. At least one of the avenues for the old “trickle down” of the benefits of economic growth was said to be wage increases.

Of course the concept of a social wage fits very well into the thinking of neo-liberal economists who seek ever greater wealth for the most wealthy and oppose wage increases as an obstacle to the profit levels of investors. Yet, in fact, many would consider the social wage as being no more than a few scraps thrown to the workers from the rich man’s table.

A nation should in fact be striving to improve the quality of life of all its people – especially of the poor and low income earners. Increased social benefits should be an addition to a nation’s sense of responsibility for the quality of life of its people – not an excuse to keep them in a lowly condition.

What of Fiji?

In the last few years when efforts have been
made to increase wages for 60% of those in
full-time employment to a figure closer to the
current poverty line, a few economists have
revived the idea of a social wage. They
suggest that social benefits such as social
welfare allowances and food stamps for the
destitute, free bus fares for children whose
parents combined income is below the tax
threshold and free text books for school
children should be considered as a social wage
and so act as an excuse for not increasing
the wages of ordinary workers who are
currently earning below the poverty line.

Even in his recent address to the
International Labour Conference in Geneva,
our Minister for Labour not only spoke about
strictly labour issues but added a long list of
programs set in place by government as “a
basic social protection floor”. Many of them
were programs targeted at the destitute,
the elderly, the disabled or child protection.

Yet Social Welfare programs target only 3-4%
of the population who are destitute and are
not workers in full-time employment..

Moreover some of the issues listed in the address from last year’s budget which could affect workers were already
withdrawn (such as the $10m to assist first
home buyers) or incorrectly reported (71% of
wage earners did not have their income
tax rates reduced). Again assistance for the
upgrading and resettlement of squatters
amounted to no more than $2m.

Price Controls on certain items, capital for income generating activities and free bus fares for children from poorer families certainly could benefit some workers but would be no substitute for better and more just

wages. It is a concern that the listing of these issues of “basic social protection” at the ILO meeting in Geneva could well come dangerously close to invoking the concept of a “social wage”.

While all these programs are much appreciated and welcomed,

 (a) they are no substitute for a just living wage, and

 (b) they need to be seen against the policies (such as devaluation and an increase in VAT) government has adopted on the recommendation of the IMF, the World Bank and the Asian Development Bank which have had an adverse effect on the poor and the ordinary workers of Fiji. Moreover these programs should be an expected initiative for any government which had the obligation to improve the quality of life of its people – especially if they are committed to the MDGs (and People’s Charter).

In fact the reduced income tax rates announced in last year’s budget benefited business corporations and the upper 25% of the population and not the ordinary people of the country. The budgets of the last few years have not been people-centred but business-centred with only a few crumbs thrown to those in need who had been adversely affected by a 20% devaluation of the Fiji dollar and a 2.5% increase in VAT. Moreover worker’s unions have been emasculated and their ability to fight for worker’s rights have been weakened.

We are following an economic system of free-market neo-liberalism which seeks to produce ever more money for those with the most wealth. Social Justice, compassion and concern for the poor and ordinary people are not values in such a system. Consequently we need to beware of how the term “social wage” is used and make sure it is not made an excuse or justification for further injustice to our workers. Rather we must seek to confront the false promises of our present economic system and be willing to re-order the economy for the good of all.

In future, if social protection programs are going to be listed at ILO, our Minister should also list the policies (like devaluation, increase in VAT etc) which are having an adverse effect on the poor and the workers of Fiji.

image002